Case Name: Kaeng Raeng Inc. v. Multivitamin Direct, Inc., et al.

Case No.: 1-14-CV-265928

 

This breach of contract and business tort action arises from a dispute between the developer of a dietary supplement and the company that was hired to manufacture the supplement over whether the manufacturer misappropriated the developer’s confidential information and breached the parties’ nondisclosure and manufacturing agreements. On May 30, 2014, plaintiff Kaeng Raeng Inc. (“Plaintiff”) filed an action against Multivitamin Direct, Inc. (“Multivitamin”), Raw Green Organics (“Raw Green”), Paul Huang, Viola Lee, and Alisia Cheuk. In the operative First Amended Complaint (“FAC”), which was filed on August 26, 2014, Plaintiff asserts eight claims: (1) breach of the non-disclosure agreement; (2) breach of the manufacturing agreement; (3) breach of fiduciary duty (confidentiality); (4) breach of fiduciary duty (loyalty); (5) intentional interference with prospective business advantage; (6) negligent interference with prospective economic advantage; (7) fraud; and (8) unfair competition under Business and Professions Code section 17200.

 

Defendants Multivitamin, Raw Green, and Ms. Cheuk (collectively “Defendants”) demur to each of the eight causes of action in Plaintiffs’ FAC. Defendants demur to all but the second cause of action on the ground that the claims are preempted by California’s Uniform Trade Secrets Act. Defendants also demur to Plaintiff’s causes of action on the ground that each of the eight causes of action fails to state facts sufficient to constitute a cause of action and on the ground of uncertainty.

 

Defendants’ demurrer to Plaintiff’s first cause of action on the ground of preemption is OVERRULED. Claims for breach of contract are expressly exempted from preemption under Civil Code section 3426.7, subdivision (b)(1).

 

Defendants’ demurrer to the third through eighth causes of action on the ground of preemption is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

 

Plaintiff’s third and fourth causes of action are for breach of fiduciary duty of confidentiality (third cause of action) and breach of fiduciary duty of loyalty (fourth cause of action). In support of the causes of action, Plaintiff alleges that, “[b]ased on their relationship, Plaintiff shared detailed confidential information with Defendant [Multivitamin] regarding product ingredients, formulas, packaging, branding, marketing, advertising, third party certifications, pricing, sales, distribution, retailers, customers, vendors, product suppliers, and industry trends.” (FAC, ¶¶ 51, 62.) With regard to the third cause of action, Plaintiff alleges that Defendants “used Plaintiff’s confidential information for their own benefit, and/or communicated Plaintiff’s confidential information to third parties, including [Raw Greens] [and] Plaintiff did not give informed consent to Defendants . . . .” (Id., ¶¶ 56, 57.) With regard to the fourth cause of action, Plaintiff alleges that Defendants “knowingly acted against Plaintiff’s interests in connection with its developing, manufacturing, and selling of its dietary supplements to the public” and “Plaintiff did not give informed consent to Defendants . . . .” (Id., ¶¶ 65, 66.)

 

From these allegations, as well as the general allegations incorporated by reference into the causes of action, it is clear that the nucleus of facts underlying Plaintiff’s causes of action for breach of the fiduciary duty of confidentiality and loyalty concern Defendants’ alleged misappropriation of Plaintiff’s confidential proprietary information. Plaintiff’s only argument in opposition to Defendants’ preemption argument is that the confidential information referenced in the FAC does not constitute a trade secret within the meaning of the UTSA. That argument has been addressed and expressly rejected by numerous courts, including the California Court of Appeal. (Mattel, Inc. v. MGA Entm’t, Inc. (2010) 782 F.Supp.2d 911, 986-987; see also Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4^th 210, 239 n. 22.) Accordingly, Plaintiff’s third and fourth causes of action are preempted by the UTSA. (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4^th 939, 960 (“K.C. Multimedia”).)

 

Plaintiff’s fifth and sixth causes of action are for intentional and negligent interference with prospective economic relations. Plaintiff supports both causes of action by alleging that:

 

Defendants engaged in wrongful conduct by including, but not limited to, improperly using and disclosing Plaintiff’s daily greens product, manufacturing and selling a substantially similar product under Defendant [Raw Green’s] brand, copying Plaintiff’s promotional, marketing, and advertising materials, representing that Defendant [Raw Greens] was simply a ‘client’ of Defendant [Multivitamin], which was untrue . . . . (FAC, ¶ 74 [fifth cause of action], and ¶ 83 [sixth cause of action].)

 

Because these causes of action are based upon the allegation that Defendants “improperly us[ed] and disclos[e]d” Plaintiff’s confidential and proprietary information, the claims are preempted by the UTSA. (See K.C. Multimedia, supra, 171 Cal.App.4^th at p. 960 [“Like its breach of confidence claim, appellant’s fifth cause of action for tortious interference with contract rests on the same legal and factual basis as its trade secret misappropriation claim.”].)

 

Plaintiff’s seventh cause of action is for fraud. As with the previous causes of action, the seventh cause of action incorporates the general allegations by reference. (FAC, ¶ 87.) Plaintiff then alleges as follows:

 

Defendants represented to Plaintiff that it would keep Plaintiff’s confidential information confidential . . . [and that] none of Plaintiff’s confidential information had been disclosed to Defendant [Raw Greens] . . . . [¶] Defendant’s representations were false. Rather, Defendants did not intend to keep confidential Plaintiff’s confidential information regarding its ingredients, formula, packaging, advertising, marketing, pricing, vendors, and product suppliers of Plaintiff’s daily greens product, but use it for its own purpose. . . . (FAC, ¶¶ 88, 89.)

 

As with Plaintiff’s third through sixth causes of action, the seventh cause of action is premised on the allegation that Defendants disclosed Plaintiff’s confidential and proprietary information. Such an allegation lies at the heart of a misappropriation of trade secrets claim. The cause of action is therefore preempted. (See Silvaco, supra, 184 Cal.App.4^th at p. 236 [holding that claims for negligent and intentional misrepresentation were preempted by the UTSA].)

 

Plaintiff’s final cause of action is for unfair competition under Business and Professions Code section 17200. In support of the cause of action, Plaintiff incorporates the general allegations by reference and then states that “Defendants’ actions discussed herein constitute unfair competition within the meaning of California business & Professions Code §§ 17200, et seq.” (FAC, ¶¶ 95, 96.) Given that the “actions discussed” previously in the FAC are facts that would give rise to a misappropriation of trade secrets claim, the unfair competition claim is similarly preempted. (See K.C. Multimedia, supra, 171 Cal.App.4^th at p. 961 [“A claim for common law or even statutory unfair competition may be preempted under CC[] § 3426.7 if it relies on the same facts as the misappropriation claim.”], internal quotation marks omitted.)

 

Defendants’ demurrer to Plaintiff’s first and second causes of action for breach of contract on the grounds of failure to plead sufficient facts to state a claim and uncertainty is OVERRULED. To state a cause of action for breach of contract, the plaintiff must plead (1) the existence of a contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) damages. (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.) As noted in Plaintiff’s opposition, paragraphs 37 through 42 (concerning the first cause of action) and paragraphs 43 through 49 (concerning the second cause of action) identify the subject agreements, their terms, Defendants’ breaching conduct, and Plaintiff’s damages. These allegations are sufficient to state a claim for breach of contract. For the same reasons, the Court finds that the allegations are sufficient to allow Defendants to respond.